Insights into the world of divorce and family law matters

February 28, 2008

Minimize the impact of divorce on your credit

If you're planning to
file for divorce this year or are already splitting your assets with
your soon-to-be ex-spouse, your credit is likely to take a hit.

Many people don't realize that lenders do not honor court decrees that
assign payment responsibilities for joint loans. The mistaken
assumption that you're off the hook for financial obligations can
result in a series of missed payments that may trash your credit score
for years.

This needn't happen if you safeguard your credit before you file for
divorce. Consider these tips from John Ulzheimer, author of "You're
Nothing but a Number" and an expert at Credit.com, a consumer personal finance site.

If you have joint accounts with your spouse, do your best to turn them
into individual accounts so that it will be easier for the divorce
court to split up your financial responsibilities. To do that you will
need your spouse's permission, which means you're going to have to let
the cat out of the bag. But taking these steps now can save you years
of credit woes later.

Begin by converting your credit card accounts. People most often miss
payments on this type of debt, rather than the loans that keep a roof
over their heads and wheels under their feet.

Next, work on refinancing your mortgage and your car loan. Granted,
this is going to be more difficult, because the bank will want just one
person to accept the loan in his or her name - which may not be possible if
that person's salary isn't enough to qualify for the loan. In cases
like these, it might be easier to sell the car or the house, split the
money and move on. That way, you're guaranteed not to have credit
damages caused by a vengeful ex-spouse.

"Remember that when you're
getting divorced from your spouse, you're also divorcing yourself from
emotional attachment to assets," Ulzheimer said.

You would also be wise to opt out of receiving pre-screened offers for
credit or insurance. A spiteful ex-wife or ex-husband may be tempted to
apply for a loan in your name just to ruin your credit. Go to the
consumer credit reporting industry's official Web site for details: www.optoutprescreen.com/.

Finally, start planning for all this at least six months to a year
before you file, or as early as possible before the divorce gets ugly.
Once any problems begin, you and your embittered other half will have a
hard time thinking logically. If this seems like a lot of work at the
front end of your separation, remember that it will save you up to 10
years of credit-related headaches in the aftermath.